After several months of negotiations on a new compromise proposal on public country-by-country reporting ("public CbCR"), the text of the Directive on tax transparency for multinationals which amends the accounting Directive 2013/34/EU[1] was finally approved by the Council of the European Union and the European Parliament on respectively 28 September and 11 November 2021.
Published in the Official Journal on 1 December 2021, the Directive, which requires reporting entities to make publicly available a country-by-country breakdown of their group's profits and certain economic, accounting and tax aggregates, entered into force on 21 December 2021[2].
The Directive shall be transposed by Member States by 22 June 2023 at the latest. This new obligation will apply for the first time from the beginning of the first financial year starting on or after 22 June 2024.
More than five years after the European Commission's first proposal[3], negotiations resumed within the European Union ("EU") under the initiative of the Portuguese Presidency of the Council of the EU. The Portuguese Presidency presented a compromise proposal on 13 January 2021[4], which was followed by intense negotiations between the Council of the EU and the European Parliament. The two bodies reached a provisional agreement on 1 June 2021, before the adoption of the final text this autumn.
While the compromise proposal of January 2021 seemed to better address some of the companies’ concerns regarding the possible commercial repercussions of this new obligation, the Directive adopted finally backed off on some of its terms and tends towards more transparency (notably regarding the safeguard clause, or cases of data aggregation).
Public CbCR constitutes a new and autonomous obligation due to its public nature, with its own scope and reporting rules, particularly as compared to the obligation to file a country-by-country report with tax authorities ("tax CbCR")[5].
1.Which companies are concerned by public CbCR?
The Directive targets, on one hand, groups whose ultimate parent undertaking is established outside the EU, as long as they have subsidiaries or branches within the EU and, on the other hand, groups whose ultimate parent undertaking is established within the EU, when these groups have a consolidated group revenue of at least EUR 750 million. The Directive also applies to standalone undertakings, i.e. companies that do not meet the criteria for belonging to a group within the meaning of Directive 2013/34/EU, if the above-mentioned threshold is exceeded.
However, European groups or standalone undertakings are exempted from public CbCR when these ultimate parent undertakings and their related undertakings, including their branches, or these standalone undertakings, are located in the same EU Member State and in no other tax jurisdiction. Companies in the banking sector are also exempted.
Thus, a group whose ultimate parent undertaking would be in France and whose subsidiary undertakings and branches would be exclusively in France, would not be concerned by public CbCR, as it is only present in one Member State. However, a group whose ultimate parent undertaking would be in France and which would have two subsidiary undertakings, one in France and the other either in another EU Member State or in a third jurisdiction (e.g., Morocco), would be subject to public CbCR since it is present on the territory of two Member States or on the territory of a Member State and a third jurisdiction, subject to meeting the EUR 750 million threshold.
For non-EU ("foreign") groups, the reporting obligation falls on the EU subsidiary undertakings and branches of the group, when the threshold of EUR 750 million turnover is met at a more global level. However, EU subsidiaries and branches are only concerned if certain thresholds are also exceeded at their level. The triggering threshold of EUR 750 million is the same as for tax CbCR but must be assessed for each of the last two consecutive financial years. There is therefore no strict identity between the entities covered by public CbCR and those covered by tax CbCR, given that the scopes of these two obligations are different (in particular, inclusion of standalone undertakings in public CbCR not included in tax CbCR, assessment of the triggering threshold for two consecutive financial years for public CbCR, double threshold for public CbCR when the reporting undertaking is a EU subsidiary undertaking or a branch).
Furthermore, an anti-abuse clause is also provided for, so that subsidiary undertakings or branches whose turnover is below the EUR 750 million threshold may still be required to report if they are deemed to exist solely to enable the ultimate parent undertaking or standalone undertaking to circumvent such new obligations.
2.What information should be published?
Although most of the information to be reported for the purposes of tax CbCR have been included in public CbCR, there is no strict identity either.
The Directive requires the report published to identify the ultimate parent undertaking or standalone undertaking and the subsidiary undertakings included in the consolidated financial statements of the ultimate parent undertaking[6], and to specify the financial year concerned and the currency used for the presentation of the report.
The report also presents indicators on the nature of the group's activities and headcounts. Finally, economic aggregates, comprising the amounts of turnover[7] (including turnover with related parties), profit or loss before income tax, income tax paid and accrued and accumulated earnings at the end of the financial year, must also be disclosed.
Reporting entities may also include in their report explanations of any discrepancies that may exist between the income tax accrued and the income tax paid.
The European Parliament had tempted to impose, on the one hand, the publication of the same information as the one required for the purposes of tax CbCR, i.e. the breakdown of the turnover between related parties and unrelated parties, the amount of state capital as well as the amount of tangible assets other than cash and cash equivalents, and, on the other hand, the publication of additional information, including public subsidies received and public donations as well as the application of any preferential tax regime, as the case may be. In the end, this proposal was not retained.
The presentation of the information to be published differs depending on whether the information concerns:
- Member States or jurisdictions on the EU blacklist as of 1 March of the financial year for which the report is made or jurisdictions on the European grey list for two consecutive years as of 1 March of the financial year for which the report is made ("NCSTs"): in this case, the information must be published with a break down by State; or
- third countries (non-NCSTs), in which case the information is published on an aggregate basis.
Where the reporting undertaking is a subsidiary undertaking or a branch and is not in possession of the ultimate parent undertaking's report or of the information necessary for its establishment, it is required to request it from its ultimate parent undertaking. If the necessary information is not provided, the reporting undertaking must prepare a report based on the information in its possession and publish a statement explaining that the ultimate parent undertaking or the standalone undertaking to which it belongs has not made the necessary information available.
- What are the conditions of publication of the report?
The report is in principle published on the reporting undertaking’s website. However, Member States may exempt undertakings from publishing the report on their website if it is simultaneously published on a register[8] accessible free of charge for any party in the EU, and provided that the reporting undertaking's website provides a link to the register's website.
The European Commission is responsible for establishing a common template and machine-readable reporting formats.
The report is published within 12 months of the financial year-end, so that the dates for filing tax CbCR and for publishing public CbCR are in principle aligned.
However, as part of the transposition, Member States may also allow reporting entities that are able to justify that the publication of certain information would be seriously prejudicial to their business interests to postpone publication for up to five years (unless the information concerned relates to a NCST). Whereas the Council of the EU had proposed the application of an automatic safeguard clause for a period of six years, the final text therefore establishes a safeguard clause that is not only optional for Member States but also shorter in duration. The question that arises today is how France will position itself toward this option.
Once published, the report must remain accessible to the public for a minimum period of five consecutive years.
Non-compliance with the publication obligation will be sanctioned by measures enacted by each Member State. The Directive also provides for a responsibility regime for the reporting undertaking’s governing bodies, whereby such bodies have a collective responsibility to ensure that the report is drawn up, published, and made accessible.
[1] Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.
[2] Directive (EU) 2021/2101 of the European Parliament and of the Council of 24 November 2021 amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches, OJEU L 429 of 1 December 2021.
[3] Proposal for a Directive amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches, COM (2016) 198 final - 2016/0107 (COD) of 12 April 2016.
[4] The compromise proposal of 13 January 2021 was analysed in Option Finance No. 1603 of 19 April 2021.
[5] Obligation under Council Directive (EU) 2016/881 of 25 May 2016 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation, transposed into French law in Art. 223 quinquies C of the French Tax Code.
[6] Provided that these subsidiaries are established (i) in the EU, (ii) in a jurisdiction mentioned in the EU list of non-cooperative jurisdiction (“blacklist”) or (iii) in a jurisdiction mentioned in the EU grey list for two consecutive years.
[7] The turnover to be reported for the purposes of public CbCR is different from the one used to assess the triggering threshold of EUR 750 million turnover.
[8] The Directive refers to the register provided for in Article 16 of Directive 2017/1132, i.e. a central register, a trade register or a company register of that Member State.
